Allowance for Bad Accounts General Journal Instructions Instalment Jewelry Company has been in business for 5 years but has never had its financial statements audited Engaged to audit them for 2016, you find that the company's balance sheet carries no allowance for bad accounts. Bad accounts have been expensed as written off and recovenes credited to income as collected. The company's policy is to write ont at December 31 of each year those accounts on which no collections have been received for three months. The metallment contracts generally are for 2 years On your recommendation, the company agrees to revise its accounts for 2016 to give effect to bad account treatment on the allowance basis. The allowance is to be based on a percentage of credit sales that is derived from the experience of prior years. Statistics for the past 5 years are shown in the following table Recoveries Year of Sale Credit Sales Accounts Written of 2012 2013 2014 2015 2016 2012 $100,000 $550 $1,500 5500 $100 2013 250,000 1.000 4 000 31 200 1300 4500 $2.700 400 2014 300,000 500 1.500 5.000 2015 325.000 1400 600 2015 275.000 Accounts receivable at December 31, 2016, were as follows: 2015 credit sales $15,000 2016 credit sales 135,000 $150,000 Required: Prepare the adjusting journal entry or entries with appropriate explanations to set up the Allowance for Bad Accounts. (Support each dom with organized computations, Income tax implications should be ignored) Chart of Accounts CHART OF ACCOUNTS Installment Jewelry Company General Ledger ASSETS REVENUE 111 Cash 411 Sales Revenue 121 Accounts Receivable 122 Allowance for Doubtful Accounts EXPENSES 141 Inventory 500 Cost of Goods Sold 152 Prepaid Insurance 511 Insurance Expense 512 Utilities Expense 181 Equipment 198 Accumulated Depreciation LIABILITIES 211 Accounts Payable 231 Salaries Payable 250 Unearned Revenue 261 Income Taxes Payable 521 Salaries Expense 532 Bad Debt Expense 533 Bad Debts Recovered 540 Interest Expense 541 Depreciation Expense 559 Miscellaneous Expenses 910 Income Tax Expense EQUITY 311 Common Stock 331 Retained Earnings EQUITY 311 Common Stock 331 Retained Earnings General Journal Prepare the adjusting journal entry or entries to set up the Allowance for Doubour Accounts on December 31, 2016. Acchionel frstructions PAGE 10 GENERAL JOURNAL DATE ACCOUNT TITLE POST. REF DEBIT CREDIT Allowance for Bad Accounts General Journal Instructions Instalment Jewelry Company has been in business for 5 years but has never had its financial statements audited Engaged to audit them for 2016, you find that the company's balance sheet carries no allowance for bad accounts. Bad accounts have been expensed as written off and recovenes credited to income as collected. The company's policy is to write ont at December 31 of each year those accounts on which no collections have been received for three months. The metallment contracts generally are for 2 years On your recommendation, the company agrees to revise its accounts for 2016 to give effect to bad account treatment on the allowance basis. The allowance is to be based on a percentage of credit sales that is derived from the experience of prior years. Statistics for the past 5 years are shown in the following table Recoveries Year of Sale Credit Sales Accounts Written of 2012 2013 2014 2015 2016 2012 $100,000 $550 $1,500 5500 $100 2013 250,000 1.000 4 000 31 200 1300 4500 $2.700 400 2014 300,000 500 1.500 5.000 2015 325.000 1400 600 2015 275.000 Accounts receivable at December 31, 2016, were as follows: 2015 credit sales $15,000 2016 credit sales 135,000 $150,000 Required: Prepare the adjusting journal entry or entries with appropriate explanations to set up the Allowance for Bad Accounts. (Support each dom with organized computations, Income tax implications should be ignored) Chart of Accounts CHART OF ACCOUNTS Installment Jewelry Company General Ledger ASSETS REVENUE 111 Cash 411 Sales Revenue 121 Accounts Receivable 122 Allowance for Doubtful Accounts EXPENSES 141 Inventory 500 Cost of Goods Sold 152 Prepaid Insurance 511 Insurance Expense 512 Utilities Expense 181 Equipment 198 Accumulated Depreciation LIABILITIES 211 Accounts Payable 231 Salaries Payable 250 Unearned Revenue 261 Income Taxes Payable 521 Salaries Expense 532 Bad Debt Expense 533 Bad Debts Recovered 540 Interest Expense 541 Depreciation Expense 559 Miscellaneous Expenses 910 Income Tax Expense EQUITY 311 Common Stock 331 Retained Earnings EQUITY 311 Common Stock 331 Retained Earnings General Journal Prepare the adjusting journal entry or entries to set up the Allowance for Doubour Accounts on December 31, 2016. Acchionel frstructions PAGE 10 GENERAL JOURNAL DATE ACCOUNT TITLE POST. REF DEBIT CREDIT